MCI Inc.

MCI, Inc. (formerly WorldCom and MCI WorldCom) was a

telecommunications company. For a time, it was the second- MCI Inc.
largest long-distance telephone company in the United States,
after AT&T. WorldCom grew largely by acquiring other
telecommunications companies, including MCI Communications
in 1998, and filed bankruptcy in 2002 after an accounting scandal,
in which several executives, including CEO Bernard Ebbers,
MCI logo
were convicted of a scheme to inflate the company's assets. In
January 2006, the company, by then renamed MCI, was acquired Trade name Verizon Enterprise
by Verizon Communications and was later integrated into Verizon Solutions
Business. Verizon Business
Formerly Long Distance
WorldCom was originally headquartered in Clinton, Mississippi Discount Services
before relocating to Ashburn, Virginia when it changed its name (1983–1995)
to MCI.[1][2] WorldCom (1995–
1998, 2000–2003)
History MCI WorldCom
(1998–2000)
MCI (2003–2006)
Foundation Type Subsidiary
Traded as Nasdaq: MCIP
In 1983, in a coffee shop in Hattiesburg, Mississippi, Bernard
Industry Telecommunications
Ebbers and three other investors formed Long Distance Discount
Services, Inc. based in Jackson, Mississippi and in 1985, Ebbers Founded 1983
was named chief executive officer. The company acquired over Defunct 2006
60 telecommunications firms, and in 1995, it changed its name to
Fate Acquired by Verizon
WorldCom.[3]
Communications in
In 1989, it became a corporation as a result of a merger with 2006
Advantage Companies Inc.[4] The company name was changed Headquarters Ashburn, Virginia,
to LDDS WorldCom in 1995, and it relocated to Clinton, U.S.
Mississippi. Products Conferencing,
contact centers,
The company grew rapidly in the 1990s, after completing several data and IP
mergers and acquisitions. services, internet
access, IT solutions
WorldCom's first major acquisition was in 1992 with the $720 and hosting,
million acquisition of Advanced Telecommunications managed networks,
Corporation, outbidding larger rivals Sprint Corporation and premises equipment
AT&T to secure the deal, making WorldCom a larger player in the (CPE), security,
telecoms market.[5] voice, VoIP, wireless

Other acquisitions included: Metromedia Communication Corp. Revenue US$20.6 billion

(2005)
and Resurgens Communications Group in 1993,[6] IDB
Communications Group, Inc (1994), Williams Technology Group,
Inc. (1995), and MFS Communications Company (1996), and Parent Verizon
MCI in 1998. The acquisition of MFS included UUNET Communications
Technologies, Inc., which had been acquired by MFS shortly (2006–present)
before the merger with WorldCom. In February 1998, WorldCom Website enterprise.verizon
acquired CompuServe from its parent company H&R Block. .com (https://enterpr
WorldCom then retained the CompuServe Network Services ise.verizon.com/)
Division, sold its online service to America Online, and received www.mci.com
AOL's network division, ANS. WorldCom acquired the corporate /mcihome.jsp (http://
parent of Digex, Intermedia Communications in June 2001 and www.mci.com/mciho
then sold all of Intermedia's non-Digex assets to Allegiance me.jsp)
Telecom.

MCI acquisition

On November 4, 1997, WorldCom and MCI

Communications announced a $37 billion merger to form
MCI WorldCom, making it the largest corporate merger in
U.S. history. On September 15, 1998, the merger was MCI WorldCom logo (1998–2000)
consummated, forming MCI WorldCom. MCI divested
itself of its "internetMCI" business to gain approval from
the United States Department of Justice.[7]

Proposed Sprint merger

On October 5, 1999, Sprint Corporation and MCI

WorldCom announced a $129 billion merger. Had the
deal been completed, it would have been the largest
corporate merger in history. The merged company would WorldCom logo (2000–2003)
have surpassed AT&T as the largest communications
company in the United States. However, the deal
foundered due to opposition from the U.S. Department of Justice and the European Union on concerns that
it would create a monopoly. On July 13, 2000, the boards of directors of both companies terminated the
merger. Later that year, MCI WorldCom renamed itself "WorldCom".[8]

Accounting scandals

Between September 2000 and April 2002, the board of directors of WorldCom authorized several loans and
loan guarantees to CEO Bernard Ebbers so that he would not have to sell his WorldCom shares to meet
margin calls as the share price plummeted during the bursting of the dot-com bubble. By April 2002, the
board had lost patience with these loans. Directors also believed that Ebbers did not seem to have a
coherent strategy after the Sprint merger collapsed. On April 26, the board voted to ask for Ebbers'
resignation. Ebbers formally resigned on April 30, 2002 and was replaced by John W. Sidgmore, former
CEO of UUNET. As part of his departure, Ebbers's loans were consolidated into a single $408.2 million
promissory note.[9][10][11]: 2 16–218  In 2003, Ebbers defaulted on the note and WorldCom foreclosed on
many of his assets.[12]

Beginning modestly during mid-1999 and continuing at an accelerated pace through May 2002, Ebbers,
CFO Scott Sullivan, controller David Myers and general accounting director Buford "Buddy" Yates used
fraudulent accounting methods to disguise WorldCom's decreasing earnings in order to maintain the
company's stock price.[12]

The fraud was accomplished primarily in two ways:

1. Booking "line costs" (interconnection expenses with other telecommunication companies)

as capital expenditures on the balance sheet instead of expenses.
2. Inflating revenues with bogus accounting entries from "corporate unallocated revenue
accounts".

In June 2002, a small team of internal auditors at WorldCom led by division vice president Cynthia Cooper
and senior associate Eugene Morse worked together, often at night and secretly, to investigate and reveal
what was ultimately discovered to be $3.8 billion worth of fraudulent entries in WorldCom's books.[13][14]
The investigation was triggered by suspicious balance sheet entries discovered during a routine capital
expenditure audit. Cooper notified the company's audit committee and board of directors in June 2002. The
board moved swiftly, forcing Myers to resign and firing Sullivan when he refused to resign. Arthur
Andersen withdrew its audit opinion for 2001.[11]: 2 23–264  Cooper and her team had exposed the largest
accounting fraud in American history, displacing the fraud uncovered at Enron less than a year earlier. It
would remain the largest accounting fraud ever uncovered until the exposure of Bernard Madoff's giant
Ponzi scheme in 2008.

By this time, the U.S. Attorney for the Southern District of Mississippi, the Federal Bureau of Investigation
and the U.S. Securities and Exchange Commission were already looking into the matter as well. The SEC
launched a formal inquiry into these matters on June 26, 2002.[11]: 2 65  The SEC was already investigating
WorldCom for questionable accounting practices.[15] By the end of 2003, it was estimated that the
company's total assets had been inflated by about $11 billion.[12]

The fraud came to light just days after Andersen was convicted of obstruction of justice in the Enron
scandal, a verdict that effectively put Andersen out of business. In his post-mortem of the Enron scandal,
Conspiracy of Fools, journalist Kurt Eichenwald argued that Andersen's failure to uncover WorldCom's
deceit would have brought Andersen down even if it had escaped the Enron fraud unscathed.[16]

Bankruptcy

On July 21, 2002, WorldCom filed bankruptcy in the largest such filing in United States history at the time
(overtaken by the bankruptcies of both Lehman Brothers and Washington Mutual in a span of eleven days
during September 2008). The WorldCom bankruptcy proceedings were held before U.S. Federal
Bankruptcy Judge Arthur Gonzalez, who simultaneously heard the Enron bankruptcy proceedings, which
were the second-largest bankruptcy case resulting from one of the largest corporate fraud scandals. None of
the criminal proceedings against WorldCom and its officers and agents were originated by referral from
Gonzalez or the Department of Justice lawyers. By the bankruptcy reorganization agreement, the company
paid $750 million to the SEC in cash and stock in the new MCI, which was intended to be paid to wronged
investors.[17]

Effective December 16, 2002, Michael Capellas became chairman and chief executive officer.[18] On April
14, 2003, WorldCom changed its name to MCI, and relocated its corporate headquarters from Clinton,
Mississippi, to Ashburn, Virginia.[19]

Even before then, however, employees from the MCI side of the merger had taken over top executive
posts, while many longtime executives from the old WorldCom were pushed out. In late 2002, the
company began moving most of its operations to its campus in Ashburn, which had opened in 2000.
Capellas, for instance, spent most of his time in Northern Virginia. After the name change, one executive
from the old MCI said, "We're taking our company back." Another wrote in an email, "My company was
not founded in a motel coffee shop."[11]: 3 20 

In May 2003, in a controversial deal, the company was given a $45 million no-bid contract by the United
States Department of Defense to build a cellular phone service in Iraq as part of the U.S.-led reconstruction
effort despite the fact that the company was not known for its expertise in building wireless
networks.[20][21]

WorldCom agreed to pay a civil penalty of $2.25 billion to the U.S. Securities and Exchange Commission.
The deal was approved by federal judge Jed Rakoff in July 2003.[22] In a sweeping consent decree, the
SEC and Rakoff essentially took control of WorldCom. Rakoff appointed former SEC chairman Richard
C. Breeden to oversee WorldCom's compliance with the SEC agreement. Breeden actively involved
himself with the management of the company, and prepared a report for Rakoff, titled Restoring Trust, in
which he proposed extensive corporate governance reforms, as part of an effort to "cast the new MCI into
what he hoped would become a model of how shareholders should be protected and how companies
should be run".[23]

Post-bankruptcy

The company emerged from bankruptcy in 2004 with about $5.7 billion in debt and
$6 billion in cash. About half of the cash was intended to pay various claims and
settlements. Previous bondholders ended up being paid 35.7 cents on the dollar, in
bonds and stock in the new MCI company. The previous stockholders' stock was
cancelled.[24]

It had yet to pay many of its creditors, who had waited for two years for a portion
of the money owed. Many of the small creditors included former employees,
primarily those who were dismissed during June 2002 and whose severance and
benefits were withheld when WorldCom filed for bankruptcy. Bernard Ebbers

Citigroup settled with Worldcom investors for $2.65 billion on May 10, 2004.[25] In
March 2007, 16 of WorldCom's 17 former underwriters reached settlements with investors.[26]

On March 15, 2005, Bernard Ebbers was found guilty of all charges and convicted of fraud, conspiracy
and filing false documents with regulators—all related to the $11 billion accounting scandal. Other former
WorldCom officials charged with criminal penalties in relation to the company's financial misstatements
include former CFO Scott Sullivan (entered a guilty plea on March 2, 2004, to one count each of securities
fraud, conspiracy to commit securities fraud, and filing false statements),[27] former controller David Myers
(pleaded guilty to securities fraud, conspiracy to commit securities fraud, and filing false statements on
September 27, 2002),[28] former accounting director Buford Yates (pleaded guilty to conspiracy and fraud
charges on October 7, 2002),[29] and former accounting managers Betty Vinson and Troy Normand (both
pleading guilty to conspiracy and securities fraud on October 10, 2002).[30]

On July 13, 2005, Bernard Ebbers received a sentence that would have kept him imprisoned for 25 years.
At time of sentencing, Ebbers was 63 years old. On September 26, 2006, Ebbers surrendered himself to the
Federal Bureau of Prisons prison at Oakdale, Louisiana, the Oakdale Federal Correctional Institution, to
begin serving his sentence; he was released in late 2019 for health reasons and died in February 2020, after
serving 13 years of his sentence.[31]
In December 2005, Microsoft announced a partnership with MCI to provide Windows Live Messenger
customers voice over IP service to make telephone calls—called "MCI Web Calling".[32] After the merger
with Verizon, this product was renamed "Verizon Web Calling".

In January 2006, the company was acquired by Verizon Communications and was later integrated into
Verizon Business.[33]

See also
1-800-COLLECT
List of corporate collapses and scandals
Vivien v. WorldCom

References
1. "MCI Inc – SC 13D/A – LCC International Inc" (http://www.secinfo.com/dr8Pp.25j.htm). U.S.
Securities and Exchange Commission. March 14, 2003.
2. "WorldCom to emerge from collapse" (http://edition.cnn.com/2003/BUSINESS/04/14/worldc
om/). CNN. April 14, 2003.
3. "WorldCom Timeline" (https://www.foxnews.com/story/worldcom-timeline). Fox News.
Associated Press. August 8, 2002.
4. P, Satish C.; Verma, Pramod (October 2004). "WorldCom Inc". Vikalpa: The Journal for
Decision Makers. 29 (4): 113–126. doi:10.1177/0256090920040409 (https://doi.org/10.117
7%2F0256090920040409). S2CID 220072620 (https://api.semanticscholar.org/CorpusID:22
0072620).
5. Scheisel, Seth (May 1, 2002). "Worldcom leader Departs Company during Turbulent Time"
(https://www.nytimes.com/2002/05/01/business/worldcom-leader-departs-company-in-turbul
ent-time.html). The New York Times.
6. "John Kluge to Sell Stake in WorldCom Inc.: Telecom: The billionaire cites estate planning
as a reason. Stock's price drops $2.125" (https://www.latimes.com/archives/la-xpm-1995-08-
15-fi-35305-story.html). Los Angeles Times. August 15, 1995.
7. "JUSTICE DEPARTMENT CLEARS WORLDCOM/MCI MERGER AFTER MCI AGREES
TO SELL ITS INTERNET BUSINESS" (https://web.archive.org/web/20090601034716/http://
www.usdoj.gov/atr/public/press_releases/1998/1829.htm). US Department of Justice. July
15, 1998. Archived from the original (https://www.usdoj.gov/atr/public/press_releases/1998/1
829.htm) on June 1, 2009.
8. Romero, Simon (July 14, 2000). "WorldCom and Sprint End their merger discussion" (https://
www.nytimes.com/2000/07/14/business/worldcom-and-sprint-end-their-115-billion-merger.ht
ml). The New York Times.
9. "Ebbers $400M in Loans from WorldCom" (http://usatoday30.usatoday.com/money/industrie
s/telecom/2002-11-05-ebbers-loans-timeline_x.htm). USA Today. November 5, 2002.
10. "WorldCom quarterly report for the quarter ended March 31, 2002" (https://www.sec.gov/Arch
ives/edgar/data/723527/000091205702020812/0000912057-02-020812.txt). May 15, 2002.
11. Cooper, Cynthia (February 4, 2008). Extraordinary Circumstances: The Journey of a
Corporate Whistleblower. Hoboken, New Jersey: John Wiley & Sons, Inc. ISBN 978-0-470-
12429-1.
12. "Worldcom, Inc. 2002 Form 10-K Annual Report" (https://www.sec.gov/Archives/edgar/data/7
23527/000119312504039709/d10k.htm). U.S. Securities and Exchange Commission.
13. Pulliam, Susan; Soloman, Deborah (October 30, 2002). "How Three Unlikely Sleuths
Exposed Fraud at WorldCom: Firm's Own Employees Sniffed Out Cryptic Clues and
Followed Hunches" (https://www.wsj.com/articles/SB1035929943494003751). The Wall
Street Journal.
14. Ripley, Amanda (December 30, 2002). "Cynthia Cooper: The Night Detective" (http://content.
time.com/time/magazine/article/0,9171,1003990,00.html). Time.
15. Gale Reaves (May 16, 2002). "Accounting for Anguish" (http://archive.fwweekly.com/index-n
ew.asp?article=3159). Fort Worth Weekly.
16. Eichenwald, Kurt (2005). Conspiracy of Fools. Broadway Books. ISBN 0767911792.
17. Feder, Barnaby J. (July 8, 2003). "TECHNOLOGY; WorldCom Agrees to Pay $750 Million In
S.E.C. Suit" (https://www.nytimes.com/2003/07/08/business/technology-worldcom-agrees-to
-pay-750-million-in-sec-suit.html). The New York Times.
18. "WorldCom, Inc. Annual Report" (https://www.sec.gov/Archives/edgar/data/723527/0001193
12504039709/d10k.htm). Edgar form 10-K. U.S. Securities and Exchange Commission.
March 12, 2004.
19. Gilpin, Kenneth N. (April 20, 2004). "Worldcom Changes Its Name and Emerges From
Bankruptcy" (https://www.nytimes.com/2004/04/20/business/worldcom-changes-its-name-an
d-emerges-from-bankruptcy.html). The New York Times.
20. "MCI's federal contracts questioned" (http://www.nbcnews.com/id/3340627/t/mcis-federal-co
ntracts-questioned/). NBC News. October 24, 2003.
21. Bergstein, Brian (May 21, 2003). "WorldCom's Iraq deal assailed" (https://www.seattlepi.co
m/business/article/WorldCom-s-Iraq-deal-assailed-1115245.php). Seattle Post-Intelligencer.
Associated Press.
22. "The Honorable Jed Rakoff Approves Settlement of SEC'S Claim for a Civil Penalty Against
Worldcom" (https://www.sec.gov/news/press/2003-81.htm) (Press release). U.S. Securities
and Exchange Commission. July 7, 2003.
23. "Restoring Trust: Corporate Governance for the future of MCI" (https://ecgi.global/code/restor
ing-trust-breeden-report-corporate-governance-future-mci-inc). July 31, 2003.
24. "Out of Chapter 11, WorldCom Is Again MCI" (https://www.nytimes.com/2004/04/21/busines
s/out-of-chapter-11-worldcom-is-again-mci.html). The New York Times. Reuters. April 21,
2004.
25. "Citigroup Reaches Settlement on WorldCom Class Action Litigation for $1.64 Billion After-
Tax" (https://www.businesswire.com/news/home/20040510005424/en/Citigroup-Reaches-S
ettlement-WorldCom-Class-Action-Litigation) (Press release). Business Wire. May 10, 2004.
26. "J.P. Morgan Chase Settles WorldCom Suit for $2 Billion" (https://www.nytimes.com/2005/0
3/16/business/jp-morgan-chase-settles-worldcom-suit-for-2-billion.html). The New York
Times. March 16, 2005.
27. "Ebbers indicted, ex-CFO pleads guilty" (https://money.cnn.com/2004/03/02/technology/ebb
ers/). CNN. March 2, 2004.
28. "Former WorldCom Exec Gets Prison" (https://www.cbsnews.com/news/former-worldcom-ex
ec-gets-prison/). CBS News. August 10, 2005.
29. Backover, Andrew (October 7, 2002). "Another guilty plea in WorldCom fraud case" (https://w
ww.usatoday.com/money/industries/telecom/2002-10-07-yates-plea_x.htm). USA Today.
30. "2 More WorldCom Execs Plead Guilty" (https://www.cbsnews.com/news/2-more-worldcom-
execs-plead-guilty/). CBS News. November 5, 2002.
31. Raina, Mekhla (February 2, 2020). "Convicted former WorldCom CEO Ebbers dead at 78" (h
ttps://www.reuters.com/article/us-people-ebbers/convicted-former-worldcom-ceo-ebbers-dea
d-at-78-idUSKBN1ZX0G2). Reuters.
32. "Microsoft and MCI Join to Deliver Consumer PC-to-Phone Calling" (https://news.microsoft.c
om/2005/12/12/microsoft-and-mci-join-to-deliver-consumer-pc-to-phone-calling/) (Press
release). Microsoft. December 12, 2005.
33. Reardon, Marguerite (January 6, 2006). "Verizon closes book on MCI merger" (https://www.c
net.com/news/verizon-closes-book-on-mci-merger/). CNET.

Further reading
Lynne W. Jeter (2003). Disconnected: Deceit and Betrayal at WorldCom (https://archive.org/
details/disconnecteddece00jete). Wiley. ISBN 0-471-42997-X.
Om Malik (2003). Broadbandits (https://archive.org/details/broadbanditsinsi00mali). Wiley.
ISBN 0-471-43405-1.
Cooper, Cynthia (2008). Extraordinary Circumstances: The Journey of a Corporate
Whistleblower. Wiley. ISBN 978-0-470-12429-1. A book by the former chief audit executive
of Worldcom on the demise of the company.

External links
Legacy MCI website (http://www.mci.com/mcihome.jsp) | Verizon Communications

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